'Motor City' Detroit files for bankruptcy with 100,000 creditors

Detroit has become the largest city in US history to file for bankruptcy,
owing 100,000 creditors $18.5 billion.

The city of Detroit filed for bankruptcty on Thursday afternoon, ending weeks of speculation about a possible such move.

Kevyn Orr, the city's emergency manager, handed over a 3,000 page document detailing all the money which the city is unable to pay.

The list of those owed includes the names of all of the city’s active employees and its retirees, a list of properties that have tax claims with the city, numerous bondholders, business creditors and companies that insured Detroit debt.

The largest creditor is the city's general pension scheme, which is owed $2 billion.

A plan devised in June called for city-employed retirees to accept less than 10 per cent of what they were owed under pension plans. But earlier this week the city's two pension funds sued Detroit's state-appointed emergency manager in an attempt to stop the cuts in retirement pay. An insurance group also threatened legal action.

The police and fire retirement scheme is owed $1.5 billion, while the city's Downtown Development Authority is owed $33.6 million.

Detroit's Emergency Financial Manager Kevyn Orr (Reuters)

Mr Orr, a bankruptcy expert hired by the state in March to stop Detroit's fiscal free-fall, said Detroit would continue to pay its bills and employees.

But, said Michael Sweet, a bankruptcy attorney in Fox-Rothschild's San Francisco office, "they don't have to pay anyone they don't want to. And no one can sue them."

The city's financial problems have been spiralling out of control for decades.

The decline in the car industry left many without jobs, meaning that families moved away. The population fell from 1.8 million in the 1950s to 700,000 today - and with it fell the tax revenues, business ownership and life of the city.

An estimated 78,000 homes are unoccupied in the city, and in 2011 half of the occupiers of the city's 305,000 properties did not pay any tax.

In a letter with the filing Rick Snyder, the Republican Governor of the state of Michigan, said he had approved a request from Detroit’s state-appointed Emergency Manager Kevyn Orr to file for Chapter 9 bankruptcy protection.

Mr Snyder said: “It is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available.

“The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services. The only feasible path to a stable and solid Detroit is to file for bankruptcy protection.”

He said it was time to “face the fact that the city cannot and is not paying its debts as they become due and is insolvent.”

Detroit stopped making payments on some of its of debt and obligations last month. The amount of money involved makes it by far the largest municipal bankruptcy ever in the US.

Detroit has been beset in recent years by corruption, crime, and the collapse of the car industry, and has struggled to police its streets as people fled to the suburbs.

The murder rate is the highest in nearly 40 years, only a third of the city’s ambulances work, and police cars and fire trucks are also in poor condition. There are 78,000 abandoned buildings in the city and 40 per cent of the street lights do not work.